The collective ideation that the term tokenomics encompasses includes a wide range of concepts that define the science and behavior of blockchain economies. In basic terms, tokenomics are the financial foundation of blockchains. Much the same way a building with a poor foundation is doomed to fail, a blockchain without a well-researched, extensively planned, and painstakingly implemented token economy eventually crumbles.
Sui tokenomics are based on sound financial concepts informed by extensive blockchain research. Designed for scale, the Sui tokenomic structure is designed to support the financial needs of web3 now and into the future.
The Sui economy
Three main types of participants characterize the Sui economy:
- Users submit transactions to the Sui platform to create, mutate, and transfer digital assets or interact with more sophisticated applications enabled by smart contracts, interoperability, and composability.
- SUI token holders have the option of staking their tokens to validators and participating in the proof-of-stake mechanism. SUI owners also hold the rights to participate in Sui governance.
- Validators manage transaction processing and execution on the Sui platform.
The Sui economy is composed of five core components:
- SUI: The SUI token is the Sui platform native asset.
- Gas fees: Gas fees are charged on all network operations and used to reward participants of the proof-of-stake mechanism and prevent spam and denial-of-service attacks.
- Storage fund: The Sui storage fund is used to shift stake rewards across time and compensate future validators for storage costs of previously stored on-chain data.
- Proof-of-stake: The delegated proof-of-stake mechanism is used to select, incentivize, and reward honest behavior by Sui Validators and the SUI owners that stake with them.
- Voting: On-chain voting is used for governance and protocol upgrades.
The following flowchart presents the tokenomic flow of Sui at a high level. Referring back to this chart after you learn concepts in this section should provide additional clarity.
Beyond the topics in this section of the documentation, you can read The Sui Smart Contracts Platform: Economics and Incentives whitepaper to learn more about tokenomic design on Sui.